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Tuesday, October 13, 2015

PSPRS investment returns through July 2015 and a look at investment fees paid last year

The following table shows PSPRS' investment returns, gross of fees*, versus the Russell 3000 for July 2015, the first month of the current fiscal year (FY), with the fiscal year end 2014 and 2015 returns included for comparison:

Report PSPRS PSPRS Russell 3000 Russell 3000
Date Month End Fiscal YTD Month End Fiscal YTD
6/30/2014 0.78% 13.82% 2.51% 25.22%
6/30/2015 -0.73% 4.21% -1.67% 7.29%

7/31/2015 0.13% 0.13% 1.67% 1.67%

There is usually about a two-month lag in PSPRS reporting its investment returns.  As can be seen, PSPRS trailed the Russell 3000 in a positive month, capturing less than 8% of the gain in the Russell 3000.  PSPRS will need as many positive months as possible this fiscal year since the markets have already had two very bad months this fiscal year.  The Russell 3000 had a monstrous 6.04% loss in.August 2015 and another loss of about 3.00% in September 2015.  The good news is that, through October 12, 2015, the Russell 3000 is up 5.17%, which has offset some of the losses from August and September, but who knows how the month will end.

The following table shows a breakdown of what PSPRS paid in fees for each of its asset classes:


Asset Class

US Equity
Non-US Equity
Private Equity
Fixed Income
Credit Opportunites
Absolute Return
Real Assets
Real Estate
Risk Parity
Short Term Investments


An explanation of the different asset classes can be found on PDF page six of this paper, which includes among its co-authors several members of PSPRS's staff.  Fees are relative, and paying 1.33% on an investment that nets you 12.72% is a good value, while paying nearly 85% of of your gross returns in fees to get a paltry .02% return seems like a bad one.  Fortunately, short-term investments make up only 3.85% of PSPRS' portfolio and is the most liquid of the asset classes. The high proportion of fees paid may have to do with the high turnover in an asset class that is likely used as a temporary parking place for money waiting to be invested in other asset classes.

The big sore thumb sticking out here is the real estate asset class, which makes up nearly 10% of PSPRS' portfolio.  Real estate was the only asset class, other than the much more profitable private equity, that had fees over 1.00%, but it really stands out because it lagged its benchmark by the most of any of the classes.  Only three asset classes did not meet their benchmarks: US equity by 0.97%, real assets by 6.42%, and real estate by 8.66%.  Even non-US equity bested its benchmark 0.47%, despite having a loss for the year.  At 12.98%, real estate had the highest benchmark return of any asset class, and PSPRS paid 1% in fees to achieve a return just one-third of the benchmark.  It would be interesting to know what, if any, effect the Desert Troon investments are still having on PSPRS' bottom line or if more recent real estate investments have been more profitable because PSPRS, unlike last fiscal year when it lost 1.26%, at least had a positive return on its real estate portfolio.  Unfortunately I have been unable to find any information about the fiscal year 2015 real estate investments in any of the recent Board of Trustees meeting materials. 

* Returns, gross of fees, are used because PSPRS usually does not report returns, net of fees paid to outside agencies, except on the final report of the fiscal year.  Returns, gross of fees, are used in the table for consistency.  The past two years fees have reduced the final annual reported return by about one-half of a percent.  Returns net of fees were 13.28% and 3.68% for fiscal years 2014 and 2015, respectively.


  1. http://investmentresearchdynamics.com/the-entire-pension-system-is-a-ticking-time-bomb/


    I appreciate the efforts of the blog. The fact of the matter is until there is a major overhaul of the financial system and the big banks are restrained we will see no recovery. This is terminally broken.

  2. Thank you for your comment and the links. In the links you provided, I found the remarks about private equity most interesting. As of 8/31/15, PSPRs has $1.25 billion (15.25% of its portfolio) invested in private equity. PSPRS has touted its private equity success, and the gains in private equity have offset losses in PSPRS' equity investments. As laypersons without access to the balance sheets of the private equity firms, it is impossible for us to know what is really going on with these investments or how safe they truly are. We have to trust these firms and that PSPRS did their due diligence, though both their track records don't give me a lot of confidence. Thanks again for reading and commenting.


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